March 27 (Bloomberg) -- CaixaBank SA, Spain’s fourth-biggest lender, agreed to buy Banca Civica SA, a group of former
savings banks, for 977 million euros ($1.3 billion) as an
overhaul of the nation’s financial industry gathers pace.

CaixaBank’s all-stock offer values Civica at 1.97 euros a
share, or 0.35 times book value, the buyer said in a statement
late yesterday. The transaction, in which Madrid-based Civica
investors get five CaixaBank shares for every eight of their
shares, is priced 11 percent below its March 23 closing price.

Adding Civica’s 72 billion euros of assets will create a
lender with 231 billion euros in loans and 179 billion euros of
deposits, Barcelona-based CaixaBank said, giving it the biggest
domestic banking business in Spain and the opportunity to
squeeze out cost savings. Chairman Isidro Faine said Jan. 27 he
expected a “wave of mergers” as the government pressures
lenders into deals by making them recognize losses on real
estate that piled up during Spain’s property crash.

“It looks like a good deal for CaixaBank at a low price,”
Nuria Alvarez, an analyst at Renta 4 Banco in Madrid, said in a
phone interview. “It’s clear there’ll be plenty of scope for
cost adjustments in terms of staff and offices.”

Civica dropped 16 percent to close at 1.86 euros in Madrid
after both stocks were suspended yesterday. CaixaBank fell 2.8
percent to 3.01 euros, reversing earlier gains of as much as 3.3
percent.

‘Solid Growth Potential’

The share valuation for Civica in the transaction is 27
percent lower than the 2.70 euro-per-share price of its initial
public offering in July, in which it raised 600 million euros.
CaixaBank has a market value of 12.1 billion euros.

“The operation creates value for shareholders of both
banks, generating a bank with solid growth potential and a
stronger future for CaixaBank amid a particularly difficult
market climate,” Faine said in an e-mailed statement.

The transaction is expected to close in the third quarter
and will generate cost savings and other benefits of 540 million
euros by 2014, CaixaBank said, adding the deal can be completed
without government money. The bank estimates net costs for
restructuring the combined business at 1.1 billion euros.

“I do accept that it’s aggressive, but we want to be
aggressive in terms of cost synergies,” Juan Maria Nin,
CaixaBank’s chief executive officer, said on a webcast for
analysts today.

Cost Savings

He said 20 percent of the cost synergies would come from
CaixaBank and 80 percent from Civica. CaixaBank has met its
market share goals and doesn’t have “any appetite” for more
growth through acquisitions for now.

CaixaBank will make a “value adjustment” for Civica
assets of 3.4 billion euros that will be charged against
reserves, meaning there will be no impact on earnings, the
lender said.

Under the terms of the offer, the combined bank will have a
pro-forma Basel II core capital ratio based on December numbers
of 10.4 percent, CaixaBank said in an e-mailed statement.

The transaction won’t prevent CaixaBank from meeting the
European Banking Authority’s 9 percent core capital ratio
requirement by June, the bank said. The ratio of bad loans to
total lending at the combined bank will be 5.5 percent.

CaixaBank said it intends to maintain its dividend at 0.231
euros per share in 2012. La Caixa, CaixaBank’s parent, will
maintain control of the bank with a 61 percent stake after the
conversion of bonds that automatically convert into shares and
the repurchase of Civica preference shares, it said. The four
savings banks that are Civica shareholders will become CaixaBank
investors with a 3.4 percent stake, the bank said.

The government’s new rules pushing banks to make bigger
provisions for real-estate losses are designed to encourage
mergers and help the industry cut scale and costs. Civica, a
lender formed from the combination of four savings banks in
regions including Navarra, Andalusia and the Canary Islands, has
to make gross provisions of about 1.25 billion euros because of
the order, compared with pre-provision profit last year of 274
million euros.